International Comparisons

Summary
Global competition increased signicantly in the 1980s and has accelerated ever since. Over the past 30 years, the manufacturing output of countries such as the UK and US has declined in comparison to others such as Germany, Japan and France. Emerging nations in East and Southeast Asia are prospering from the development of their manufacturing industry. A nations prosperity depends on its comparative productivity with other countries. Emerging nations are successfully challenging Western economies and, for the rst time in its history, the US may see a fall in living standards over the next 20 years. Asian automobile companies are signicantly more productive than those in the more established manufacturing nations of North America and Europe. Successive UK governments have seen overseas competition as necessary for developing a strong domestic manufacturing base, but the UK manufacturing industry has been slow to respond. High-volume UK industries such as motorcycles, automobiles, trucks and shipbuilding have been lost to emerging nations. Many North American and European countries have failed to recognize the size of the competitive challenge they face and the impact of increasing world manufacturing capacity. There is still too little research and development investment. Senior managers lack operations experience and do not involve operations managers in strategic discussions. Operations managers must become less obsessed with meeting short-term performance targets and start thinking strategically. Managers striving to overcome competitors work and think differently to those simply meeting operational targets. Operations managers must take the initiative, change their role and think and act more strategically.

High levels of industrial competition created a stark new reality in the 1980s. Manufacturing companies in most industrial nations struggled to survive by restructuring and downsizing their activities. This signalled an economic change that continued into the 1990s and has even increased pace into the new millennium. Despite this new challenge, most Western companies still believe operations should focus on short-term issues and leave strategy to the marketing and nance functions. However, this book argues that an operations strategy is essential for companies to compete in domestic and world markets. Without one, it will not be able to survive, let alone grow its market share. This chapter compares the performance of nations and businesses over the past 30 years. It shows that newer ones are outperforming those with strong industrial traditions by using different operations management approaches. This has further increased the level of competition and the need to use operations as a strategic force both within businesses and between nations.

Manufacturing Operations Strategy International Comparisons

Manufacturing output
Performance trends in a nations wealth-creating sectors reect the overall prosperity of the country. For most countries, manufacturing is the most signicant wealth-creating activity and its level of output gives a clear insight into a countrys general wellbeing. Comparative gures on balance of payments of goods over the past 47 years reveal the mixed fortunes of major industrial nations. Some countries of manufacturing repute have lost ground, while others (for example Germany and Ireland) have maintained sound growth throughout (see Exhibit 1.1).

Country Germany China Ireland Korea Indonesia Japan Canada Italy US Australia France India UK

1960 n/a n/a n/a n/a n/a n/a 0 n/a 0 225 n/a 943 808

1970 17,995 n/a n/a n/a n/a n/a 0 n/a 0 441 n/a 408 36

1980 11,010 4,249 n/a 4,613 7 0 0 n/a 0 1,187 n/a 7,600 2,658

1990 90,741 9,165 4,827 2,461 5 0 0 0 0 452 n/a 7,808 37,414

2000 96 34,474 43,279 16,954 25 0 0 0 0 7,828 5,684 16,496 65,952

2002 213,235 44,167 56,257 14,777 24 0 0 0 0 9,601 12,641 9,556 95,410

2007 326,719 217,746 36,314 29,409 30 0 0 0 1 20,327 60,498 61,504 175,298

NOTE: Indonesia 1980 is 1981 and 2007 is 2006; Japan 1980 is 1985; Germany 1970 is 1971; China 1980 is 1982 and 2007 is 2006. SOURCE: OECD, Main Economic Indicators, April 2008

EXHIBIT 1.1

($millions)

Comparative balance of payments on goods for selected countries, 19602007

Of equal concern to these nations is how well they fare within the increasingly competitive markets they serve. Exhibit 1.2 shows percentage share of world trade in manufactured goods for selected countries from 1980 to 1996. The yearly performances of these different countries vary noticeably. The USs strong export position after losing ground in the 1980s strengthened in the 1990s to reach a period high in 1996. Germany and Japan, while declining in the period, were still major performers in terms of world trade. The UK was the worlds number one manufacturing nation at the start of the 1900s but now only contributes to 5 per cent of world trade. Meanwhile, several European countries have steadily improved and set an important benchmark as the major economic blocs of North America, Asia Pacic and Europe took shape in the 1990s and strengthened into the 21st century.
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20 18 16 14 12 10 8 6 4 2 0 1980 1982 1984 1986 1988 1990 1992 1994

US Germany Japan Italy France UK Spain

Percentage share

1996

EXHIBIT 1.2

Percentage share of world trade in manufactured goods for selected countries, 198096

SOURCE: OECD and UK Department of Trade and Industry for relevant years

Several emerging nations are effectively competing in export markets and improving their trade balances. As a result, the world competitive position of the US and Europe has worsened. This is shown in Exhibits 1.3, 1.4 and 1.5. The exportimport trade ratios in Exhibit 1.3 show the relative trading performances of main manufacturing nations, while Exhibit 1.4 provides the same exportimport ratio for North America and the European Union. Exhibit 1.5 shows the trade balance for electronic products, an increasingly important manufacturing sector.

Country

Aerospace

Electronic industry 1984 10.55 1.19 1.45 1.12 0.47 0.73 0.52 0.07 1995 3.07 0.64 0.93 0.97 0.47 0.87 0.65 0.17

Ofce machinery and computers 1984 5.61 0.74 0.87 0.69 0.40 0.73 1.83 0.04 1995 1.97 0.81 0.59 0.68 0.59 0.97 0.59 0.27

Pharmaceutical

Total

1984 Japan Italy Germany France Canada UK US Australia 0.10 1.09 1.05 2.21 0.65 1.43 2.98 0.11

1995 0.26 0.99 1.08 2.35 1.34 1.53 3.20 0.38

1984 0.27 0.97 1.74 1.93 0.34 2.14 1.70 0.34

1995 0.40 0.97 1.51 1.25 0.30 1.74 1.12 0.46

1972 2.82 1.31 1.53 1.10 n/a 1.09 0.84 n/a

1984 2.78 1.24 1.42 1.11 1.01 0.81 0.63 0.54

1995 1.74 1.30 1.28 1.08 1.01 0.90 0.73 0.51

SOURCE: OECD, Main Science and Technology Indicators, 1974, 1984 and 1998

EXHIBIT 1.3 Exportimport ratio for selected sectors (1984 and 1995) and total manufacturing (1972, 1984 and 1995)

Manufacturing Operations Strategy International Comparisons

Region European Union North America

EXHIBIT 1.4

Total manufacturing 1990 1.10 0.71 1995 1.25 0.69

SOURCE: OECD, Main Science and Technology Indicators, 1998

Total manufacturing exportimport ratio by region

Country Japan Singapore Korea Malaysia Hong Kong France UK Germany Australia Italy Canada Total Europe US

1985

1993 $bn

1998

37.1 1.1 2.0 0.7 1.3 (1.5) (3.0) (0.7) (2.6) (2.1) (6.7) (10.7) (14.5)

75.2 11.4 11.3 9.0 2.1 (4.1) (6.0) (7.1) (4.6) (4.3) (7.5) (32.2) (29.1)

58.9 22.5 17.1 16.9 (0.5) (3.9) (4.4) (4.4) (7.7) (9.4) (11.4) (27.0) (50.4)

NOTES 1 Electronic equipment includes electronic data processing, ofce equipment, controls and instruments,

medical, industrial, military, communications, consumer and telecommunications. Components comprise active, passive and other. 2 These trade balances are calculated by subtracting the value of imports from the value of exports. Figures in brackets indicate an unfavourable balance.
SOURCE: Yearbook of World Electronics Data, 1988 and 1993, Vols 1 and 2 (Elsevier Advanced Technology, Oxford) and 1999, Vols 1 and 2 (Reed Electronics Research, Sutton)

EXHIBIT 1.5 Trade balance for electronic equipment and components for selected countries by value ($bn) for 1985, 1993 and 1998

The growing prosperity of emerging nations is built on the development of wealth-creating sectors such as manufacturing. Successive UK governments ignored this and acted on the often-painful premise that exposure to overseas competition is necessary for developing a strong domestic manufacturing base. Of deeper concern, however, was

manufacturing industrys slow response to this exposure. Many UK rms complained about unfair external competition and focused on domestic rather than overseas competitors. They adopted inadequate reactive strategies without appreciating the consequences of these decisions. Excess capacity tended to be lled by chasing sales, increasing variety and reducing order sizes. All this gave overseas higher volume competitors a substantial advantage and UK industries such as motorcycles, automobiles, trucks and shipbuilding have been lost. The same is true in the US and Exhibit 1.6 shows how their car plants have had to close while Japanese companies are setting them up just down the road. Many businesses recognized too late that competition had increased and markets had subsequently changed. They spent most of the past 2530 years trying to catch up with their competitors and are still struggling to compete. While nations such as the US, the UK and others with long manufacturing traditions have suffered from this surge in competition, countries such as Japan and Singapore move from strength to strength. Of deep concern are the facts underlying these trends, especially that of comparative productivity between nations.

Implants Firm Location Marysville Honda East Liberty Alliston Capacity (000s cars) 360 150 100 General Motors Firm

Closures Location Leeds Norwood Detroit Pontiac Capacity (000s cars) 250 250 212 100 300 200 200 54 21 1,817

NUMMI Toyota Nissan Mazda

Fremont Georgetown Cambridge Smyrna Flat Rock

100 240 50 480 240 1,720

Chrysler

Kenosha Framington

General Motors Lakewood Pontiac Chrysler Detroit

Total implant capacity

EXHIBIT 1.6

Total closure capacity

NOTE: NUMMI New United Motor Manufacturing Inc., a joint venture between General Motors and Toyota.

The challenge of world competition: the North American auto lesson in the 1990s

Productivity: national comparisons

A nations prosperity depends on its comparative productivity. The past three decades of increasing competition have brought this sharply into focus. Although not a precise measure, it allows performance of individual countries to be compared and ranked against each other. There are two important dimensions of a productivity slowdown for any nation. The rst is the rate of the slowdown itself; the second is the cumulative effect of the slowdown on the comparative level of productivity between a country and its competitors.
Manufacturing Operations Strategy International Comparisons 7

When a nations growth rate lags substantially behind that of other industrialized countries for a protracted period, its standard of living declines and companies nd themselves at a serious competitive disadvantage. As this condition continues, recovery becomes increasingly difcult. For the rst time in its history, the next US generation may fail to enjoy an improvement in living standards and may even experience a decline. Productivity measures the relationship between outputs (in the form of goods and services produced) and inputs (in the form of labour, capital, material and other resources). Two types of productivity measurement are commonly used: labour productivity and total factor or multifactor productivity. Labour productivity measures output in terms of hours worked or paid for. Total factor or multifactor productivity not only includes the labour input but also all or some of the plant, equipment, energy and material input. However, a change in productivity must not be attributed to a single input. All inputs are interrelated and combine to create change. For example, production methods, capital investment, process technology, labour force, managerial performance, capacity utilization, material input/usage rates, capacity scale and product mix are all potential contributors to productivity improvements. Furthermore, the relative importance of these will vary from nation to nation, industrial sector to industrial sector, company to company, plant to plant and time period to time period. Although it may be difcult to gain a consensus on the quantitative dimensions of productivity measurement, the qualitative conclusions on the differing levels and trends within nations are clearly shown in Exhibits 1.7 and 1.8. There is signicant growth in countries such as Korea, Taiwan and Sweden over the past 40 years, but the comparative slowdown in the US signals that its lead is shrinking, living standards are levelling off and its competitive position is declining.

Country Korea Sweden Taiwan US France Netherlands Germany Japan UK Belgium Canada Italy
EXHIBIT 1.7
8

1960 n/a 28 n/a 53 23 20 29 14 30 18 41 20

1970 6 53 13 62 46 39 52 38 43 33 59 37

1980 29 74 45 94 71 70 77 64 54 65 75 44

1990 88 95 91 98 99 99 99 95 89 97 95 93

1995 131 122 113 115 114 120 111 109 107 109 108 114

2000 192 177 149 147 144 139 132 131 117 126 134 116

2006 287 247 199 198 175 167 165 161 152 148 139 111

SOURCE: Monthly Labor Review, Bureau of Labor Statistics, US Department of Labor, www.bls.gov, Feb 2007

Trends in manufacturing output per hour for selected countries, 19602006 (1992 = 100)

Country Korea Sweden Taiwan US France Japan Germany UK

EXHIBIT 1.8

Annual growth in output per hour (% per year) 197080 2 2 3 3 3 3 3 1 198090 6 2 5 0 3 3 2 4 19902000 4 3 2 2 2 1 1 2 20006 16 14 8 9 5 5 6 6 19702006 8 6 5 4 4 3 3 3

NOTE: Analysis is based on gures in Exhibit 1.7.

Annual percentage growth in output per hour 19702006

Productivity: plant-level comparisons

In the 1990s, competition signicantly increased in most North American, Asia Pacic and European markets as strong domestic companies were challenged by global companies. This trend has continued and relative performance against market needs will determine which companies gain ground and market share. The automotive industry is one example of the erce ghting taking place. This sector is core to many industrial economies due to the combined size of its manufacturing, assembly and supply chain activities. Exhibit 1.6 showed how Japan is winning market share in the US automotive industry. Regional and global overcapacity means competition will remain high and productivity will continue to be key to an organizations success. To succeed in the future, auto companies must increase efciency to compete against new rivals and fresh benchmarks. Exhibit 1.9 illustrates the current productivity differences between organizations. For some, the gap is enormous and clearly shows the challenge from Japan and Korea. Furthermore, Exhibit 1.10 shows that these differences are related to companies rather than locations by presenting the data given in Exhibit 1.9 by location for both the parent company and manufacturing plant. The best and worst productivity gures again highlight the marked contrasts provided by Asia Pacic and the more established manufacturing nations of North America and Europe.

Manufacturing Operations Strategy International Comparisons

Auto maker and location

Vehicles (000s) produced 1998

Vehicles per employee 1997 n/a 57 31 61 52 26 77 59 28 70 54 147 99 123 112 111 122 165 62 70 69 59 98 58 62 62 34 1998 83 57 35 68 58 31 76 59 37 73 61 163 119 116 114 113 103 165 65 76 69 64 105 72 64 61 31
contd

Canada

Toyota GM

Cambridge Oshawa Mlada Boleslav Douai Aulnay Sochaux Eisenach Saarlouis Emden Mel Miraori Mizushuma Kyushu Suzuka Sayama Okazaki Takaota Changwon Ulsan #2 Navarra Martorell Valladolid Sunderland Burnaston Swindon Dagenham Longbridge

172 459 288 385 262 237 175 290 330 383 416 521 430 568 485 173 450 248 157 311 499 214 289 172 112 250 282

Czech Republic Skoda Renault France PSA PSA GM Germany Ford VW Italy Fiat Fiat Mitsubishi Nissan Japan Honda Honda Mitsubishi Toyota Korea Daewoo Hyundai VW Spain SEAT Renault Nissan Toyota UK Honda Ford Rover

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Auto maker and location

Vehicles (000s) produced 1998

Vehicles per employee 1997 87 85 82 75 78 69 79 72 n/a 1998 87 87 88 84 83 81 72 56 51

Toyota/GM Honda Honda Ford US Toyota Ford Ford Nissan GM

NUMMI East Liberty Marysville Atlanta Georgetown Chicago Wayne Smyrna Doraville

362 239 456 257 475 255 227 309 257

NOTE: GMs Oshawa gures are for two car plants. SOURCE: Motor Business Europe (Q4, 1999), Motor Business International (Q4, 1999) and Motor Business Japan (Q4, 1999). The Economist Intelligence

Unit (UK) 1999

EXHIBIT 1.9

Productivity in some of the worlds auto plants, 1997 and 1998

Regional location Parent company European Manufacturing plant Europe Japan Japanese Europe North America North American Korean
EXHIBIT 1.10

Vehicles per employee (1998) Best 76 163 105 88 76 84 165 Worst 31 103 64 56 59 51 65

Europe North America Korea

Best and worst productivity levels by auto maker and regional location (1998)

Why has this happened?

The reasons for this are many and varied, and are discussed below. Some are unsubstantiated opinions whereas others are supported by fact. Some are more relevant to certain nations, sectors and companies and others less so. However, learning from past failures is a step towards determining how to build a more successful competitive future.

Manufacturing Operations Strategy International Comparisons

11

Failure to recognize the size of the competitive challenge

Consciously or otherwise, industries and societies have failed to recognize the size of the competitive challenge, the impact it has had and will have on our very way of life and the subsequent need to change. The signicant loss of smokestack industries since the 1950s in major industrial nations is the most vivid example. They misunderstood the size of the competitive challenge. And the challenge will continue. In the shadow of Japan, there are now many other competitors eager to take a larger share in world manufacturing output. Exhibit 1.11 provides one such example.

Country China Taiwan South Korea Netherlands US Italy Germany Spain Japan Denmark Belgium France UK

1985 n/a 381 248 50 3,668 1,535 4,401 350 7,399 58 130 695 1,010

1990 645 737 669 106 2,660 2,889 6,872 800 8,629 67 224 920 1,179

1995 1,242 1,266 695 95 3,520 2,537 5,579 506 6,992 61 189 601 753

2001 2,929 1,825 897 413 3,185 4,163 7,560 932 10,481 62 245 861 846

2005 2,548 2,736 2,320 338 4,099 3,912 7,882 904 9,381 67 209 730 577

2005 (1990 = 100) 395 371 347 319 154 135 115 113 109 100 93 79 49

NOTE: Up to 1990, the data for Germany includes the former DDR. SOURCE: CECIMO Statistical Overview of the Machine Tool Industry 19852005 (2006)

EXHIBIT 1.11

Production of machine tools without parts and accessories for selected countries

(millions)

Failure to appreciate the impact of increasing manufacturing capacity

World manufacturing capacity up to the mid-1960s was, by and large, less than demand; in this period companies sold all they could make. With the rebuilding of some industrial nations and the emergence of others, output in both traditional and new industrial nations began to outstrip total demand. At rst, the more traditional sectors (such as shipbuilding and steel) were caught in the bind of overcapacity. Since then, this has spread into other sectors such as automobiles and semiconductors. The most signicant and consistent outcome has been the impact on competition. Overcapacity has
12

contributed to the competitive nature of markets. The results have added to the dynamic nature of current markets both in terms of the form that competition takes and the timescales of change experienced.

Lack of research and development investment

The pressure to market more and better products has heightened in recent years because of increasing competition and shorter product life cycles. Companies must meet this need by investing in research and development (R&D). Exhibit 1.12 shows the clear commitment of major manufacturing nations. By 1989, Japan headed the list for the rst time (the detail is not included in Exhibit 1.12 but was 2.98 per cent compared with the US at 2.88 per cent for 1989) and it continues to do so. The Korean gures also show a real commitment to technical development on which Korea is building an increasingly competitive economy. Exhibit 1.13 shows the outcome of this approach in the international trade balance for highly intensive R&D-based industries. Both Korea and Japan export signicantly more electronics products than they import. By contrast, the US has a huge decit in electronics, ofce machinery and computers.

Country Japan Korea US Germany France Canada UK Total EU Australia Italy

1981 2.32 n/a 2.45 2.45 2.01 1.23 2.42 n/a n/a 1.01

1985 2.77 n/a 2.93 2.72 2.25 1.44 2.31 n/a 1.27 1.13

1992 2.95 2.08 2.74 2.48 2.42 1.55 2.13 1.92 1.59 1.20

1995 2.98 2.68 2.61 2.30 2.34 1.62 2.02 1.84 1.62 1.01

1997 2.83 2.79 2.64 2.39 2.26 1.64 1.94 1.84 1.68 1.05

2002 3.17 2.53 2.66 2.49 2.23 2.04 1.83 1.76 1.69 1.13

2005 3.33 2.78 2.62 2.48 2.13 1.98 1.78 1.73 n/a 1.10

NOTE: 1995 gure for Australia is for 1994;1997 gures for Australia, Japan, South Korea, UK and Total EU are for 1996 respectively. SOURCE: OECD, Main Science and Technology Indicators for relevant years

EXHIBIT 1.12

Gross domestic expenditure on R&D as a percentage of gross domestic product (GDP)

Manufacturing Operations Strategy International Comparisons

13

Country

Aerospace

Electronic industry 34,222 39,370 1,564 (2,131) (3,564) (2,737) (319) (7,791) (5,809) (6,600) (53,476)

Ofce machinery and computers 10,710 (3,264) 6,015 (3,930) (8,599) (10,680) (9,688) (7,240) (8,378) (5,706) (53,651)

Pharmaceutical

Instruments

Total

Korea Japan Ireland Switzerland Germany France UK Italy Canada Australia US

EXHIBIT 1.13

(1,188) (5,117) (2,408) (272) 20 13,261 5,460 498 2,799 (2,454) 38,635

(1,488) (4,987) 18,031 13,713 7,580 4,282 5,405 (1,099) (4,767) (3,213) (14,879)

(1,284) 14,941 6,204 13,964 19,661 (910) (801) (1,519) (5,237) (3,056) 3,477

40,972 40,943 29,406 21,344 15,098 3,216 57 (17,151) (21,392) (21,029) (79,894)

International trade balance for highly intensive R&D industries in 2005 ($ millions)

Top managements lack of operations experience

Top managements lack of operations experience has further ramications for a business. Since operations accounts for some 6070 per cent of assets, expenditure and people, operations managers must be more involved in strategic decisions and senior executives must fully appreciate their arguments. Once a company has made large investments, rarely does it invest a second time to correct any mistakes. There is no such lack of experience in Japan and Germany, where a full and perceptive insight into operations is a prerequisite for top management. However, the consequences of this knowledge gap do not stop here. As Wickham Skinner observes:
To many executives, manufacturing and the production function is a necessary nuisance it soaks up capital in facilities and inventories, it resists changes in products and schedules, its quality is never as good as it should be, and its people are unsophisticated, tedious, detail-oriented and unexciting. This makes for an unreceptive climate for major innovations in factory technology and contributes to the blind spot syndrome.1

And this brings with it many important consequences. One is that senior executives do not perceive the strategic potential of operations. Typically it is seen in its traditional productivity-efciency mode with the added need to respond to the strategic overtures of marketing and nance. The result is that operations concentrates its effort and attention on the short term, while adopting its classic, reactive posture towards the long-term strategic issues of the business.

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Operations managers obsession with short-term performance

The emphasis within the operations managers role has, in turn, been directed towards short-term issues and tasks. The overriding pressures to meet day-to-day targets and the highly quantiable nature of the role and the output measures have reinforced the tendency of operations executives to concern themselves with this feature to the exclusion of the important long term. The skills of operations managers are high on short-term tasks such as scheduling, maintaining efciency levels, controls and resolving labour problems. Skinner rightly observed this 20 years ago when he commented:
Most factories were not managed very differently in the 1970s than in the 1940s and 1950s. Manufacturing management was dominated by engineering and a technical point of view. This may have been adequate when production management issues centred largely on efciency and productivity and the answers came from industrial engineering and process engineering. But the problems of operations managers in the 1970s had moved far beyond mere physical efciency.2

This trend has continued in line with the fast-changing nature of markets. By the turn of the century, the operations job had changed from one that concerned maintaining the steady state operations by sound day-to-day husbandry to one that is now multidimensional. It is increasingly concerned with managing greater complexity in product range, product mix, volume changes, process exibility, inventory, cost and nancial controls and employee awareness because of the more intensive level of domestic and international competition. This is the nature of the new task in the new millennium. No longer are the key issues solely conned to operational control and ne-tuning the system. The need is for broad, businessoriented operations managers, but companies have produced too few of them. The use of specialists as the way to control our businesses has increasingly led to a reduction in the breadth of a line managers responsibilities, which has narrowed the experience base. Furthermore, many operations managers, outgunned by the specialist argument, have found themselves unable to cope with the variety of demands placed on them. The response by many has been to revert increasingly to their strengths. This has, therefore, reinforced their short-term role and their inherently reactive stance to corporate strategic resolution. Operations executives do not, on the whole, explain the important, conceptual aspects of operations to others in the organization. Seldom do they evaluate and expose the implications for operations of corporate decisions so that alternatives can be considered and more soundly based decisions can be reached. This is partly because of a lack of developed language to help explain the corporate operations issues involved. Lacking in the strategic dimension, therefore, operations has often been forced into piecemeal change, achieving what it can as and when it has been able. The result has been a series of intermittent responses lacking corporate coordination.

Operations strategy
In the past two decades, countries such as Japan, Germany and Italy, as well as emerging industrial nations such as South Korea and Taiwan, have gained competitive advantage through operations, with India and China next in line. The Japanese, in particular, have
Manufacturing Operations Strategy International Comparisons 15

TIONS OPERA AGERS MAN ECOME UST B M TEGIC STRA

Corporat e strategy provides opportu nities and opt ions

TIONS FUNC EMENT IMPL ATEGY STR

gone for existing markets and provided better goods with few, if any, inherent benets derived from material and energy resources. The earlier examples serve to illustrate this. One of the keys to this achievement through operations has been the integration of these functional perspectives into corporate strategy debate, and it is appropriate now to explain what this embodies and how it differs from the conventional approaches to the management of operations. In broad terms, there are two important roles that operations can offer as part of the strategic strengths of a company. The rst is to provide operations processes that give the business a distinct advantage in the marketplace. In this way, operations will provide a market edge through unique technological developments in its process and operations that competitors are unable to match. This is quite rare and examples are hard to nd. One such is Pilkingtons oatglass process.3 The second is to provide coordinated operations support for the essential ways in which products win orders in the marketplace that is better than such support provided by the operations functions of its competitors. Operations must choose its process and design its infrastructure (for example controls, procedures, systems and structures) that are consistent with the existing way(s) by which products win orders, while being able to reect future developments in line with changing business needs. Most companies share access to the same processes, and thus technology is not inherently different. Similarly, the systems, structures and other elements of infrastructure are equally universal. What is different is the degree to which operations matches process and infrastructure to those criteria that win orders. In this way, operations constitutes a coordinated response to the business needs that embraces all those aspects of a company for which operations is responsible. To do this effectively, operations needs to be involved throughout the whole of the corporate strategy debate to explain, in business terms, the implications of corporate marketing proposals and, as a result, be able to inuence strategy decisions for the good of the business as a whole. Too often in the past, operations has been too late in this procedure. Corporate executives have tended to assume that competitive strategies are more to do with, and often in fact are one and the same as, marketing initiatives. Implicit, if not explicit, in this view are two important assumptions. The rst is that operations role is to respond to these changes rather than to make inputs into them. The second is that operations has the capability to respond exibly and positively to these changing demands. The result has been operations inability to inuence decisions, which has led to a posture that appears to be a function that is forever complaining about the unrealistic demands placed upon it. The need for an operations strategy to be developed and shared by the business is not only to do with the critical nature of operations within corporate strategy but also a realization that many of the decisions are structural in nature. This means that they are hard to change. If the business does not fully appreciate the issues and consequences, it can be locked into a number of operations decisions that will take years to change. These can range from process investments on the one hand to human resource management practices and controls on the other. Decisions not in line with the needs of the business can contribute signicantly to a lack of corporate success. To change them is costly and timeconsuming. But even more signicant, they will come too late. The development of a corporate policy consisting of a coordinated set of main function inputs will mean that a business would be able to go in one consistent, coherent direction based on a well-argued,
Manufacturing Operations Strategy International Comparisons 17

well-understood and well-formed strategy. This is achieved, in part, by moving away from argument, disagreement, misunderstanding and short-term, parochial moves based on interfunctional perspectives to the resolution of these differences at the corporate level. Currently, marketing-led strategies leave the aftermath to be resolved by operations, which, without adequate appropriate guidance or discussion and agreement at the corporate level, resolves the issues as best it can largely from its unilateral view of what is best for the business as a whole. In the majority of cases, operations is simply not geared to a businesss corporate objectives. The result is an operations system, good in itself, but not designed to meet market needs. Operations left in the wake of business decisions is often at best a neutral force, and even sometimes inadvertently pulls in the opposite direction. Seen as being concerned solely with efciency, the question of operations strategic contribution is seldom part of the corporate consciousness. What does all this mean for operations managers? One clear consequence is the need to change from a reactive to a proactive stance. The long-term inexible nature of operations means that the key issues, and there are many of them, involved in process choice and infrastructure development need to be reected in business decisions, with the business being made aware of the implications for operations of proposed corporate changes. When this is achieved, the strategy decisions that are then taken reect what is best for the business as a whole. So, operations managements attention must increasingly be towards strategy. This does not mean that day-to-day operations are unimportant, but time must also be spent developing and implementing strategy. Top management have, by and large, perceived improvements as coming from corporate activities such as acquisitions, mergers and new product or market development. However, strategies must also be developed and implemented at a functional level. In successful businesses, operations develop the capability to support current and future market requirements within a well-chosen, well-argued and well-understood business strategy.

Reections
There is a growing and consistent awareness that the emphasis in successfully managed operations function is increasingly towards issues of strategy. Early evidence was provided in the Advisory Council for Applied Research and Developments 1983 booklet entitled New Opportunities in Manufacturing: The Managements of Technology. This specically recommended that companies in manufacturing should review the balance of their senior management (team) and ensure that the role of a suitably qualied board member includes responsibility for manufacturing strategy.4 In the 21st century, this board-level contribution is even more crucial to the continued success and growth of companies. Top management needs to pay a great deal more than lip service to the task of ensuring that operations input into the strategic debate is comprehensive and that the agreed corporate decisions fully reect the complex issues involved. Much determination will need to be exercised to ensure that the more supercial approaches to incorporating the wide-ranging aspects of operations into business decisions are avoided. The rewards for this are substantial.

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Operations executives must begin to think and act in a more strategic manner. In an environment traditionally geared to meeting output targets, the pressure on operations has been to manage reactively and to be operationally efcient rather than strategically effective. It has been more concerned with doing things right (efciency) than doing the right things (effectiveness). Over the years, this has been seen as the appropriate operations task and contribution. Furthermore, it has given rise to the related assumption that any other posture would imply negative attitudes, with operations appearing to be putting obstacles in the way of achieving key business objectives. At times, this puts operations in the vicious circle of business demands on operations, operations best response, a recriminating business appraisal of that response, new business demands for improved operations performance and so on. The purpose of this book is to help to avoid the all-toocommon corporate approach to operations by providing a set of concepts and approaches that together create a platform from which operations can make a positive contribution to developing powerful competitive strategies. But, operations executives must rst accept that they need to manage their own activities strategically and this is almost as much a change in management attitude as it is an analytical process. The purpose of thinking and managing strategically is not just to improve operational performance or to defend market share. It is to gain competitive advantage and it implies an attempt to mobilize operations capability to help to gain this competitive edge. Kenichi Ohmae, a leading Japanese consultant with McKinsey,5 suggests that when managers are striving to achieve or maintain a position of relative superiority over competitors, their minds work very differently from when the objective is to make operational improvements against, often arbitrarily set, internal objectives. This chapter has highlighted operations tendency to emphasize operational efciency more than competitive advantage. The danger for the business is that operations gets so used to absorbing and responding to demands that reacting becomes the norm. Each crisis is viewed as a temporary situation that often militates against recognizing the need to review strategies fundamentally. By the time this need becomes obvious, the business is often at a serious competitive disadvantage. The aims of this book are to help operations reverse its reactive tendencies and change its short-term perspective; that is, to explain operations from a strategic perspective by identifying the managerial and corporate issues that need to be addressed to establish competitive advantage. There is much evidence that in many traditional manufacturing nations the capability exists to turn domestic manufacturing around and to challenge and beat overseas competition in both home and world markets. There are already examples of that turnaround in competitive performance, but the key ingredients include tough, professional management, combining strategic analysis of key issues with the intuitive, creative air that for so long has been directed primarily towards solving operational problems. It is imperative that operations managers take the initiative. For some organizations or functions within a business, the status quo even suits them. In those same organizations, operations is played off against a forever changing set of objectives and targets, and it hurts. If operations waits for other corporate initiatives, they will not come soon enough. The lack of empathy and understanding by top management towards operations often means that, when difculties arise, the preferred course of action is to get rid of the
Manufacturing Operations Strategy International Comparisons 19

problem by selling off the business or buying in from outside. The causes of the problem are seldom addressed. Companies should realize that there are no long-term prots to be made in easy manufacturing tasks anyone can provide these. It is in the difcult areas where prots are to be made. Furthermore, selling off inherent infrastructure can lead to an inability to compete effectively in future markets. The critical task facing operations managers is to explain the essential nature of operations in business terms, and this must embrace both process technology and infrastructure development.

Discussion questions
1 Comment on the comparative balance of payments on goods (19602007) for selected countries shown in Exhibit 1.1. Why do these differences exist? What is the impact of these trends on the economies of the countries involved? 2 Comment on the varying trends in manufacturing output per hour for selected countries shown in Exhibit 1.7. What are the causes of these variations? What is the impact of these trends on the economies of the countries involved? 3 Comment on the level of production of machine tools without parts and accessories for selected countries shown in Exhibit 1.11. Why do these differences exist? What is the impact of these trends on the economies of the countries involved? 4 What has been the policy of the UK government to the UK manufacturing industry over the past 30 years? Why do you think it has taken this stance? What do you believe has been the impact of this? 5 What would be the long-term impact of the trends shown in Exhibits 1.1, 1.7 and 1.11? How can these trends be reversed?

Notes and references

1 2 Skinner, W. (1983) Operations technology: blind spot in strategic management, Harvard Business School working paper 835, p. 11. Skinner, Operations technology, p. 6. These views are also conrmed by Skinner in his book Operations Management, Strategic Context and Managerial Analysis (2000) Basingstoke: Macmillan Business. The development of the oat-glass process in the 1950s by Pilkington, a UK glass manufacturer, was a remarkable step forward in the technology of oat-glass making. The costly grinding and polishing operations in the conventional manufacture of glass were eliminated and the result was plate glass production at a fraction of the cost. Advisory Council for Applied Research and Development (1983) New Opportunities in Manufacturing: The Management of Technology, London: HMSO Cabinet Ofce, October, p. 48. Ohmae, K. (1982) The Mind of the Strategist, New York: McGraw-Hill, pp. 367.

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